Moore is Ready for the Wallace Merger: Notes from Moore’s Q4 Conference Call February 17, 2003 – Moore Corporation Ltd. (TSX, NYSE: MCL) held their conference call for their fourth quarter and 2002 year-end results on Thursday. Moore has recently been in the news with their announcement about the merger of Moore Corporation Ltd. and Wallace, Inc. (see Raine Radar archived notes on the Moore Wallace conference call from January 17th, 2003) For the fourth quarter 2002 (ended December 31st), Moore Corporation reported revenue of $522 million compared to $537 million same quarter in 2001. The net earnings for the fourth quarter 2002 were $28 million as compared to a net loss $99 million for the same quarter in 2001. For the full year ended 2002, the company reported revenues of $2.04 billion compared to sales of $2.15 billion in 2001. The year 2002 net earnings were $73.3 million compared to 2001 net loss of $373 million. Topics: - CEO Comments - Financial Summary - Outlook for 2003 - Q&A CEO Comments: Mark Angelson, CEO of Moore Corporation Ltd. initiated the conference call with introductory comments: “In 2002, Moore either met or exceeded internal targets which paid down debt and produced free cash flow. We are satisfied with our progress and encouraged by the trajectory especially in generating free cash flow”. He also commented that: - $40 million improvement in fourth quarter was due to waste and manufacturing initiatives; - $143 million increase in free cash flow in 2002; - Net debt of $68.2 million versus $101 million in 2001; - Moore Wallace merger will be accretive in the first year; and - New Moore Wallace company will be positioned “as the leading provider of print management solutions.” Financial Summary: Mark Hiltwein, Moore’s Chief Financial Officer, reports improvement in financial results was a result of: - Headcount reduction in back office; - Reduction of IT spending; - Reduction of discretionary costs; and - Manufacturing efficiencies: run speeds, waste, and errors. Some additional financial performance indicators outlined by the CFO: - There was approximately $122 million in cash at year-end and $65.5 million of that came in the fourth quarter. - Organic growth was 1.5% for the fourth quarter 2002. Moore was just under 1% organic growth for the year. - SG&A Expenses were reduced in the fourth quarter to 21% from 24.4%, same quarter last year, as a percentage of sales. For the full year 2002 the SG&A Expenses were 22.6% of sales, down from 24.6% in 2001. - The 5.4% decrease in sales in 2002 is due to divesture of non-core businesses, and devaluation of foreign currency. - EBITDA increased to $189.3 million from $140 million in 2002; up to 9.7% from 6.5% of sales a year ago. Outlook for 2003: The CFO continued the conference call by outlining Moore’s expectation for continued strong results in the first half with dividends going up over 64% in the first quarter 2003. Additional 2003 metrics included: - Organic growth will range from 0% - 2.0% - EBITDA will range from $225 – $240 million - SG&A to be less than 20% of sales Q&A 1. Contract wins have been in excess in $50 million in 2002. Moore has had success in gaining market share in the more profitable middle markets and has acquired 4,000 new customers in 2002. 2. IT Spend run rate was $200 million (10% of revenue in 2000) and has been cut in half to 5% of revenue in 2002. Moore admitted they need to have a run rate closer to their competitors, in the range of 3.0%–3.5%, and plan to get redundancies out their business through more efficient processes. They are currently evaluating the Moore and Wallace IT organizations to identify redundancies and improvements. IT spending avoidance will be a priority as they put the two companies together and move towards Wallace’s current IT run rate of 3-3.5% of revenue. 3. Customer reaction to the merger has been positive “virtually unanimous” according to the CEO. 4. Wallace commercial print facilities are in the middle of due diligence activities. Moore plans to hit the road on 02/17/03 visiting all the facilities. Not expecting any upgrades or capital investments; in fact “quite the contrary.” 5. Raw material costs are seeing price increases but Moore believes the market is softening up and they are not expecting significant impact from price increases. 6. Last question received on the conference call asked why Robert Burton’s (Moore’s ex-CEO) separation costs of $9.2 million were so large since he left for personal reasons. Burton was with the company for less than two years. The CEO stated that the payment was made to do the right thing and done so as an ordinary course of payment. This payment was quite small in comparison with the package of their predecessor who left in 2000 after only being at Moore for 20 months; and was paid $26 million. Moore has identified Burton’s separation cost in their press release to “intentionally shine a flashlight on this expenditure so that there is no misinterpretation. We are pleased with Bob’s entire association with this organization.”